One year after beginning its project of "Simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules", ASX has now implemented a raft of amendments to the Listing Rules, with a start date of 1 December 2019 (noting that transition periods will apply for some of the changes).
While some of these changes simply streamline its operation or correct gaps and errors in the listing rules to reflect their current application, other amendments are more significant and intend to improve market disclosures, strengthen the integrity of the market, simplify and enhance the efficiency of particular listing rules, and provide ASX with greater control.
We have sought to identify the main changes in this article and some of the practical considerations ASX-listed entities will need to take into account
New disclosure requirements
Assets test – working capital calculation
Entities looking to meet the assets test for ASX admission can no longer include budgeted revenue and budget administration costs in its working capital calculation (noting that to meet the assets test, an entity must have at least $1.5m in working capital). ASX is removing forecasts from these calculation.
Quarterly reports
As part of their quarterly reporting requirements, start-up entities, mining exploration entities and oil and gas entities will now be required to complete a "quarterly activities report" which must:
- disclose whether the entity has at least two quarters' funding available in their quarterly cash flow reports (based on the entities previous quarter cash burn), rather than disclosing the entity's estimated cash outflows for the relevant quarter. If an entity does not have at least two quarters funding, it must inform ASX of the reasons for this and whether the entity has, or proposes to, take any steps to raise further cash to fund its operations; and
- compare actual expenditure to the entity's estimates of expenditure in "use of funds" statements provided in the entity's offer documents or expenditure programs provided as part of the listing process, and to explain any material variances.
- These quarterly activities reports must be lodged immediately once the information is available for release to the market, which is once the report has been properly compiled, verified and approved by the board.
LICs and LITs
Listed investment companies (LIC) and listed investment trusts (LIT) must disclose month-end net tangible asset (NTA) backing per security immediately once it is available for release to the market, which is once it has been properly compiled, verified and approved by the board, and in any event, not later than 14 days after month-end. LICs and LITs that do not disclose its monthly NTA by the due date will be automatically suspended from quotation on the ASX.
Director nominations
To clarify the disclosure of closing dates for the receipt of director nominations, entities will be required to disclose the intended date of the meeting at which directors may be elected and the closing date for the receipt of director nominations at least 5 business days before that closing date. ASX has suggested that notice for the closing date of the receipt of director nominations can be given in the form of a calendar of events.
Voting
There have been considerable changes to both voting exclusions and the recording of voting results, including:
- Voting exclusions: The voting exclusions currently combined in listing rule 7.1 and 7.1A will be separated and a revised table of voting exclusions has been added to the listing rules. References to parties who must have their votes excluded under listing rule 11.1 and 11.2 (change to nature and/or scale of activities) will be amended to a person who obtains a "material benefit" as a result of the relevant transaction, and to a person who might obtain a material benefit for related party transactions and significant transactions.
- Voting results: Entities will be required to disclose extensive voting information regarding the results and structure of each resolution put to a meeting of security holders. ASX has published a sample template for the disclosure of voting results that entities should use a guide for future meetings. ASX has also introduced a new rule requiring all listing rule resolutions to be decided by poll rather than a show of hands.
Underwriting agreements
Entities will be required to disclose additional information regarding underwriting agreements, including the name of the underwriter, the extent of the underwriting, any fees or commission payable under the agreement, and a summary of significant events that could lead to its termination. These disclosure requirements do not apply to sub-underwritings.
Distribution schedules
The distribution schedule in an entity's annual report will be required to include both the number of security holders and the total percentage of securities held by holders in each category.
Market integrity improvements
Market announcements
ASX announcements must be sent to ASX with a covering letter that includes the entity's name, address and corporate logo, and details of the body or officer who authorised the document to be given to ASX. If the announcement is price-sensitive, the entity must also include the name, title and contact details of a person whom security holders or other interested parties can contact if they have any queries.
Good fame and character
The requirement to satisfy the good fame and character test has been extended to non-director Chief Executive Officers and Chief Financial Officers (in addition to directors) for new listings and appointments.
Listing rules compliance course
From 1 July 2020, persons who are appointed to a role whereby they are responsible for communication with the ASX on listing rule issues (usually the company secretary) will be required to undertake and obtain an acceptable pass mark in an approved listing rule compliance course. Following appointment in this position, ASX will generally allow persons a short grace period (no more than 5 business days) to complete the educational course.
Placement capacity
Entities will not be able to make an issue under their additional 10% placement capacity for non-cash consideration. Entities will also need to disclose (via the new Appendix 3B) whether the issue of securities by placement is being made under the base 15% placement capacity or its additional 10% placement capacity. Worksheets have been added to the new Appendix 3B allowing entities to calculate its placement capacity for these issues and confirm compliance with the applicable listing rule.
Simplification and efficiency measures
Announcement and application for security quotation
Entities will deal with the announcement of new issues and applications for quotation of securities in two separate "smart forms" – a revised Appendix 3B for the notification of a proposed issue and a new Appendix 2B to apply for quotation of securities. Previously, both of these announcements were made under the existing Appendix 3B.
Entities will also need to complete the new Appendix 3G for the issue of securities that are to be unquoted (for example, options under an employee share plan). ASX will release electronic versions of the Appendix 2A and Appendix 3B and Appendix 3G ahead of 1 December 2019 to give entities an opportunity to familiarise themselves with the new forms. ASX will continue to accept the old Appendix 3B until the end of January 2020.
Escrow regime
Where an entity seeks listing, re-listing, or issues restricted securities, it will only need to execute a formal Appendix 9A escrow agreement with each "significant holder" of restricted securities (such as related parties, promoters, substantial holders, service providers and their associates). These entities will not need to execute escrow agreements with non-significant holders of restricted securities and can instead rely on the provisions of their constitution.
Entities seeking listing, re-listing or issuing restricted securities post-1 December 2019 will need to ensure that they have the relevant provisions in their constitution providing for the new escrow regime.
Related party transactions
ASX has increased the disclosure obligations of entities undertaking transactions with related parties and added an additional category to the security issues requiring approval under Listing Rule 10.11 – these are issues to:
- a person who is, or was at any time in the 6 months before the issue or agreement, a substantial 30% holder in the entity;
- a person who is, or was at any time in the 6 months before the issue or agreement, a substantial 10% holder in the entity and who has nominated a director to the board of that entity; or
- an associate of a person referred to above.
From 1 December 2019, issues of equity securities to 10% substantial holders who have nominated a director to the listed entity's board in accordance with an agreement will require security holder approval under listing rule 10.11. This will capture any anti-dilution rights proposed to be given to those investors.
Subsequently, ASX will no longer issue anti-dilution waivers under listing rule 6.18 to strategic investors of that kind. Entities that have the benefit of a listing rule 6.18 waiver should approach ASX to discuss its preparedness to grant a concurrent waiver of the new listing rule 10.11.3.
Notification of Chess Depository Interests (CDIs)
If you have CDIs issued over your quoted securities, you must notify the ASX on a monthly basis of the number of CDIs on issue (as they transfer between the share register and CDI sub-register) over that month via a new Appendix 4A form.
Corporate transaction timetables
Timetables for corporate transactions have been updated, which includes a new timetable for schemes of arrangement and the shortening of many of the existing timeframes.
Enhancing ASX powers
No-action letters
ASX will have the power to impose conditions on no-action letters which entities must comply with.
Requests for information
ASX will have the power to request any information, document or explanation from a listed entity confirming its compliance with any requirement or condition under the listing rules. ASX will be empowered to require that any such information, document or explanation be verified under oath, if necessary.
Power to censure
ASX will be empowered to formally censure a listed entity that has breached the listing rules or a condition imposed under the listing rules and further, may publish the censure and the reasons for it.
What you should do to get ready for 1 December 2019 – and beyond
Entities listed on the ASX and those seeking to list on the official list of the ASX need to comply with the new listing rules to avoid ASX exercising its power and discretion under the listing rules for non-compliance. To do so, you should familiarise yourself with the updated listing rules and guidance notes published on ASX's website, and:
- update your templates for market announcements;
- understand the new Appendix 2A, Appendix 3B, Appendix 3G and (if dual listed with CDIs) Appendix 4A;
- if you're a quarterly reporting entity, get ready to comply with the new quarterly activities report requirements;
- consider amending your constitution to provide for the new escrow regime;
- remember to update your distribution schedule to include both the number of security holders and the total percentage of securities held by holders in each category in your next annual report; and
- understand the new voting exclusion requirements, update your template for disclosure of voting results, and note ASX's position that all listing rule resolutions must be decided by poll before you circulate your next notice of meeting.